I Just Bought a House - Now What?
Buying a house is a huge milestone and an accomplishment that should be celebrated. It also comes with a lot of additional financial opportunities and responsibilities. So the big question is, what do I do now?
Well, there are a million things to do from a homeowner’s perspective, new furniture, new paint, and new renovations you might want to make. But from a financial perspective, there is really only a few main items that you need to make sure you’re taking care of. I’ll stick to the financial items since that’s my area of expertise.
1. TRACK YOUR SPENDING
The most important step in financial health is tracking how much is coming in, how much is going out, and what’s left over. Starting that habit now, when expenses are changing, will put you ahead of 90% of people in America when it comes to reaching your financial goals. There is a ton of different ways you can do this. There are a lot of different budgeting apps that can make it easy for you - see Mint, Simplifi, YNAB, PocketGuard, Goodbudget. Or you could track it on a spreadsheet. Here is a link to a template that I use to track my spending and saving for each month (you’ll need to make a copy as this will be a template) - give me a call if you’d like a walkthrough explanation.
The goal here long-term is to get in the habit of tracking your money each month and to break down your spending into three categories - Needed it, Wanted it, Saved it. In the short-term you could have a fourth category which is New Home Expenses, these are things that increase your spending in the short-term but won’t be around forever.
Needed it: being things like your new mortgage payment, your utility bills, any debt payments that you have to make every month, grocery bills, fuel costs, etc. Basically, anything that you have to pay for every month.
Wanted it: being things that you didn’t need to spend on but chose to. Things like nice new clothes, going out to eat, tickets to movies or shows. Anything that we would call discretionary spending, the extra spending that you could live without if you had to.
Saved it: being any money that left your checking account that is going towards yourself for some goal. This could be excess investment savings into a Roth or Traditional IRA or to an HSA or even just to your personal savings account to be saved for a future goal or to fill your emergency fund.
Knowing exactly how much you’re spending and what you’re spending on can lead to realizing just how much you have left over to save and can cut down on some of that “oh I have money in my account, let’s go spend it” mentality. Knowing how much you have available to save can then dictate how much you save and what you are saving towards. It allows you to take control of your money instead of having your money control you.
2. BUILD UP YOUR EMERGENCY FUND
This is an extremely important 2nd step before, but especially after buying a house. Luckily, step 1 makes this easier to accomplish by allowing you to see how much you have left over after necessary expenses. Which, then, allows you to know how much is available to save and spend.
Having an emergency fund is so crucial as a homeowner because owning a home can come with a lot of surprises that can cost a lot of money - especially in older homes. The general rule of thumb here is to have between 3 - 6 months of that necessary spending money saved in a high-yield savings account. So for someone who has a $2,000 mortgage payment, spends $600 per month on groceries and has a $400 car payment, their emergency fund should be somewhere between $9,000 and $18,000. I would recommend any homeowners to have at least $12,000 in the bank as a general rule, just in case any big-ticket home repairs come up.
It’s important that this money is liquid and safe so that you have access to it no matter what happens - you should not be investing this money in the stock market. Some people will say you need to invest every dollar you have, but I can assure you that if they have had an emergency in the past 6 months and had to sell stock to withdraw that money with the market down 20% they are not in a very good position.
3. MAKE SURE YOUR INSURANCE IS UP TO DATE AND RIGHT FOR YOUR SITUATION
If you have bought a house with someone else or have children, now can be a great time to figure out if you have enough insurance to protect you if anything bad were to happen to one of you. You should look into life insurance, as well as disability insurance. Mortgage payments do not stop if for you pass away or become disabled. However, your income will. To protect yourself you need to make sure you have life insurance that will cover:
The remaining principle balance of your mortgage
Any other outstanding debts you may have
Enough money to replace a portion of your income until your spouse is age 60
You can get more life insurance if you wish to fund your children’s college funding but the two above are minimum coverage I would recommend. For disability insurance we recommend an own occupation policy that covers at least 60% of your salary.,
4. SET GOALS AND START SAVING FOR THEM
Now that you have all of your fundamentals taken care of: you’re tracking your spending, you have a goal for an emergency fund, and you’re sufficiently protected, it’s time for the fun stuff. Now you can begin designing the life you want to live. You can plan car/boat purchases, vacation homes, planning for a child, retirement ages, anything you’ve ever wanted to do you can now start planning for. If you need help with the math, reach out to a financial planner! This is a great time to start a relationship with a financial professional who can walk you through each of these steps as well as help with the more complex parts of your financial picture.
Click the button below to schedule an introductory meeting to discuss any questions you may have relating to these steps. It’s a great time to start planning!
Will